Archive for the ‘budget’ Category

The past year and a half has seen trying times for many businesses across all industries. Companies have been forced to drastically cut costs to stay alive, and many are dependent on the outcome of the upcoming Federal Budget to further ensure their survival. We have seen some positives in the economy that indicate a recovery is on the way: January 2010 marks the fourth employment gain in the past 6 months with the unemployment rate at 8.3%; CMCH (Canadian Mortgage and Housing Corporation) forecasts that the housing starts for 2010 will be 180,000 units which is up from 149,000 units in 2009; and the Bank of Canada anticipates that the interest rates will rise Q3 2010. Although Canada is in a great position for recovery and we were far less impacted by the recession than any other country in the world, we do expect that it’s going to take some time to turn around yet. Many industries are hopeful that the when the Federal Budget is announced this Thursday, March 4th it will bring them some relief in the form of tax breaks. Let’s take a look at how our biggest industries have been affected during the recession and what they are asking for.

Canadian Manufacturers

• More than 239,000 jobs lost in 2009
• Sales of Canadian produced goods fell from monthly peak average of $54B mid 2008 to a low of $34B mid 2009 (consumers stopped buying, foreigners stopped importing, and banks stopped lending in 2009)
• According to Canadian Manufacturers and Exporters (CME) foreign merchandise sales from August 2008 to August 2009 fell 31.6%
• Canadian manufacturers want Ottawa to start cutting the deficit and national debt without boosting taxes
• Also asking for tax changes to allow money spent on employee training to be applied towards reducing company’s EI premiums

Lumber and Pulp-and-Paper

• Rising Canadian dollar negatively impacted the industry’s exports
• US housing starts dropped 38% in 2009 (National Association of Realtors)
• Softwood lumber shipments down 21% and Pulp-and-Paper down 18% during first 11 months of 2009 compared to same period in 2008
• Canadian log cutters looking to emphasize new products rather than new markets
• Asking Ottawa for a switch to production of bio-fuel and bio-products through tax incentives and a made-in Canada energy policy that will enable them to better tap into the fast expanding green market

Information Technology

• The IT sector was hit far less than other industries – PC shipments down 2% in 2009 (source: Gartner)
• Gartner predicts that PC shipments will increase by 12.6% in 2010
• The Information Technology Association of Canada (ITAC) is asking the federal government to stick to their plan of expanding the country’s broadband network
• Also want to extend 2011 deadline to end favourable tax treatment of computers and software (temporary 100-per-cent capital cost allowance (CCA) rate for computers acquired after January 27, 2009 and before February 1, 2011)

Oil and Gas

• At 2008 peak, barrel of Brent oil from North Sea cost $144.95 US and that same barrel went for $38.12 US a year later
• US Energy Information Administration predicts that a barrel of West Texas Intermediate crude (average price of $61.66 US/barrel in 2009) will be $79.78 in 2010 and should rise to $83.50 in 2011
• Canadian Association of Petroleum Producers (CAPP), which measures oil activity in terms of capital spending forecasts that members will invest $40B in exploration and production in 2010 compared to $34B that the same companies spent in 2009
• CAPP asking Ottawa to allow oil drillers to write off 100% of exploration costs in the first year (to delay phase-out of accelerated tax write-off treatment for oil sands development costs) and to expand existing scientific tax credits

Banks

• In 2008, the top 8 Canadian banks earned $474B which is a drop of 35% or $25B from a year earlier but saw a gain of 33% for the 3-month period ending October 31,2009
• Canada avoided most of the turmoil because our major banks weren’t huge buyers or sellers of exotic debt instruments
• Bankers want to see Ottawa stick to their current plan of cutting corporate income tax to 15% by 2012 and to implement recommendations that came from a 2008 advisory panel concerning international taxation
• Also asking that the federal government allow for consolidated tax reporting by Canadian companies

Stay posted for more updates on the Federal Budget and how your business could be impacted!

Lines of credit have almost completely dried up in this recession, and it’s harder than ever for businesses to fund their new development projects.  Ontario’s Advanced Manufacturing Investment Strategy (AMIS) is a great venue for Ontario manufacturers to pursue. What’s more, AMIS is available to companies from all manufacturing sectors in Ontario. The $500 million dollar provincial program focuses on:

• industrial R&D
• design/prototyping/engineering
• new/ advanced products/materials
• advanced manufacturing processes
• robotics/software development
• waste reduction
• energy conservation

AMIS, when granting a loan, can provide up to 30% of the total eligible costs of a project (up to a limit of $10M). This funding is given in the form of a repayable loan. The loan is interest free and principal free for up to five years, providing the company receiving it meets job and investment targets mutually agreed upon between the company and the province. After that period, the repayment rate is the province’s cost of borrowing, plus an additional 1%.

To be eligible, projects must create and/or retain at least 50 jobs. Alternatively, the projects must invest $10 million over the 5 year period. The costs eligible for the loan (excluding ongoing costs of production or operations) include:

• research and development
• equipment and machinery
• materials
• construction/facility improvements
• training
• overhead
• labour (one time only)

The terms for the loan are negotiated individually. After completing the application process, most companies receive word of the province’s decision within a relatively speedy 45 calendar days. This sometimes may take longer for the more complicated applications. The Minister of Finance, along with the Minister of Economic Development, approve or deny applications based on the guidelines of the AMIS Assessment Committee.

What’s more, for those manufacturers who regularly claim for SR&ED, receiving an AMIS loan has no impact on SR&ED eligibility. The AMIS loan is not affected if a business has already received an SR&ED return or income tax credits.  Companies that have received AMIS funding often include extra cash procured by SR&ED towards their projects. In fact, any business that has received SR&ED credits is more likely to be meeting the AMIS eligibility requirements.

For more information about AMIS, visit http://www.ontariocanada.com/ontcan/en/progserv_amis_en.jsp

Cambridge area manufacturer Purchasing Manager Walat Yasin offers the following advice to fellow companies:

Buying foreign has become of great interest to our company recently, especially as we have the order quantities to justify the purchases and save significantly. We also do not have the local manufacturing resources for particular products.  We, like any company, are in search of the benefits of having quality goods produced from offshore countries at a competitive price.

For example, China manufacturers have progressed a great deal in recent years in terms of quality, technology and overall management; therefore there is reason to have more faith in their service, quality and overall handling of orders.

Below are some of the reasons as to why China is so successful on a global economic scale, and why importers around the globe are looking to purchase more and more from China to maximize their buying power:

1. Low overheads & labour rates
2. Large population
3. Huge industrial base
4. Supportive government
5. Growing infrastructure

There are obviously great benefits to buying offshore, but at the same time there are also potential risks and disadvantages. That is why it’s critical to establish your suppliers in business-developed countries such as China and Italy. By working closely with your foreign sources, you can gain that trust, partnership, quality, service, and profitability as long as communication is kept clear and flowing between you and your suppliers/sources.

There are only two ways to find an overseas supplier. One is to purchase directly from the supplier, the other to go through a procurement Specialist/third party. We utilize both options. Going the direct route, however, poses many difficulties. Besides the obvious language and cultural barriers, there is the issue of distance. For example, I cannot see a product or test it while it’s all the way in Italy. However; if my agent is located in Italy he or she can go and analyze the product on my behalf. Furthermore, if I lack experience in sourcing a particular product, the agent can assist.

Locating the perfect supplier is only the first step. Monitoring, quality control, and punctual delivery are all equally important. None of them can be handled effectively alone long distance.

Therefore, in most cases, unless a company is planning to hire knowledgeable staff and set up an offshore-based procurement office, the direct approach can be a tricky proposal for most.  That is why more and more businesses are using a third party agency. These agencies charge a small fee, but are very helpful when facilitating your offshore purchasing initiatives. They will connect with the right people and communicate between you and the suppliers to obtain the best value, optimum product and best services for your company’s dollar.

Some points to keep in mind when purchasing foreign:

• Do your research on the suppliers and products.
• Visit sources if feasible, see what their facilities look like, what technology they are utilizing, what type of staff they have , their capabilities etc.
• Negotiate everything, payment terms, pricing, freight, lead-times, as nothing is in stone. Ask for references from the potential suppliers, visit their website, see product reviews, testimonials from customers etc.
• Check to see if they have quality standards set in place, and what their procedures are. How long they been in business?
• Always get samples for your own testing purposes prior to purchasing anything offshore.
• Always keep in mind currency differences, freight charges, customs fees, long lead-times and duties for any product or service that is purchased from overseas as this might determine if purchasing offshore is suited for your company or not.